MELBOURNE, May 21: A spate of profit warnings from Australian mining services firms suggests the country’s “once-a-century” resources spending boom may have peaked sooner than companies had expected.
Shares in Transfield Services Ltd sank as much as 24 percent on Tuesday to an all-time low of A$0.965 after the engineering firm cut its profit forecast by more than a quarter.
With miners from BHP Billiton Ltd down shelving projects and slashing costs that grew out of control during the boom, they have turned the screws on contractors, in some cases dumping firms that are unwilling to cut prices.
“They got carried away using too many contractors to get that extra tonne, almost like a credit-card mentality,” Tony Maher, mining division president of the Construction, Forestry, Mining and Energy Union, told Reuters.
The pain that first hit mining and engineering firms late last year has intensified more than expected, judging by the slew of negative revisions to profit forecasts.
WorleyParsons Ltd, Boart Longyear Ltd, Transfield Services Ltd, UGL Ltd, Fleetwood Corp and Coffey International Ltd all slashed their profit forecasts over the past week, decimating their shares.
Transfield and its bigger rival UGL both blamed volatility in commodity markets and a slowdown of capital investment in resources and infrastructure projects.
Fleetwood, which provides housing for mining camps, plunged as much as 33 percent to a four-year low after warning there was now an oversupply of housing in one of Western Australia’s resources hubs, Karratha.
Drilling services firm Boart Longyear added to the gloom on Tuesday, citing estimates exploration spending in the mining sector is down 20 percent from a year ago. As a result, it expects prices for drilling services to fall in the second half of this year.
“The downturn in capital and exploration spending in the mining sector globally has clearly reduced the demand for drilling services and products,” Boart CEO Richard O’Brien said in a statement ahead of the group’s annual meeting.
Former market darling WorleyParsons warned last week that its profit for the year to June 2013 would fall, compared with earlier guidance for a rise, blaming not only weaker demand for resource infrastructure in Western Australia but also softer construction activity in Canada’s oil sands market.
WorleyParsons said it was surprised by the extent of the decline, referring to “weaker than anticipated market conditions impacting the second half result.”
Its shares hit a four-year low after the warning. (AGENCIES)
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